E-Paper
Reduced borrowing limit leaves cash-strapped Himachal govt in limbo
Himachal Pradesh government faces economic challenges with reduced borrowing limits, mounting debts, and pension burden. Seeks help from 16th Finance Commission.
The chief minister (CM) Sukhvinder Singh Sukhu-led government has turned its attention to the intensifying economic challenges as it struggles beyond the crutch of loans.
The development comes in the backdrop of the central government having reduced Himachal’s borrowing limit by ₹5,500 crore.
During the previous Bharatiya Janata Party (BJP) government’s tenure, Himachal had permission to take loans up to 5% of its GDP, but it has now been reduced to 3.5%. If effectively brought down the borrowing capacity from ₹14,500 crore to ₹9,000 crore annually.
Five ongoing cases in the Himachal Pradesh high court related to arrears from the new pay commission, payments to daily wage earners, pensions during contractual periods and seniority post-contract.
The court has directed the government to ensure payment to the tune of crores to employees and pensioners in the five cases. In many instances, the court has issued stern comments and warnings to the government, putting financial management officials under pressure. Following the court’s reprimand, the government’s resource mobilisation committee has also become active in increasing revenue sources and cutting expenditures.
A debt of ₹94,000 crore
The state government has accumulated a debt of around ₹94,000 crore, of which more than ₹10,000 crore is owed to employees. It translates to a per capita debt of ₹1.17 lakh, the second highest in the country after Arunachal Pradesh.
The previous BJP government provided all employees and pensioners with the benefits of the new pay scale in January 2016, but arrears are still pending. Before the December 2022 assembly elections, an instalment of arrears ranging from ₹30,000 to ₹40,000 was given. Many employees and pensioners, however, are still awaiting arrears exceeding ₹3-4 lakh.
Wobbly economy
The revenue deficit grant (RDG) is continuously decreasing, with Himachal receiving ₹40,624 crore in RDG under the 14th Finance Commission, which was reduced to ₹37,199 crore under the 15th.
In 2021-22, Himachal received ₹10,249 crore in the RDG, which will drop to ₹3,257 crores by 2025-26. Similarly, the central government stopped the GST compensation, which used to bring in more than ₹3,000 crore annually since the introduction of GST.
The central government also stopped the matching grant Himachal received annually in place of non-performing assets (NPA). The state government used to deposit ₹1,780 crore annually with Pension Fund Regulatory and Development Authority as NPA, but since April last year, Himachal reinstated the Old Pension Scheme (OPS). Therefore, from April 2023, the state and employees’ share will not be deposited with PFRDA as NPA, but the finances on wobblier ground.
Seeks liberal funding
from 16th Finance Commission
With debts piling, the state has appealed to the 16th Finance Commission for liberal funding to address its mounting pension liability. The state government’s expenditure on salary, pension and interest payments has reached 46.33% of its total expenditure for 2023-24.
The number of pensioners in the state has risen to 189,466, with projections indicating an increase to 238,827 by 2030-31, resulting in an annual pension burden of approximately ₹20,000 crore. The state’s salary and pension bill has ballooned to ₹26,722 crore, exacerbating the financial crisis.
The restoration of the OPS, a key election promise, is expected to worsen the financial situation. The state’s memorandum to the 16th Finance Commission highlights that salary expenditure accounts for 25.13% of its total expenditure in 2024-25, with 60% of this burden attributed to the health and education departments. Despite some regular appointments, the pension burden continues to rise due to enhanced retirement benefits, dearness allowance releases and increasing life expectancy.
Himachal Pradesh has one of the highest employee-to-population ratios in the country, with limited revenue-generating sources.
The state’s financial woes are further complicated by the impending end of GST allocation from the Centre. With ₹9,000 crore in arrears yet to be paid to its 242,877 employees, Pradesh faces a daunting task in meeting its salary and pension obligations.
The state government has defended its hefty salary burden, citing significant investments in health and education sectors and reforms to ensure quality services. However, the financial health remains a pressing concern, with the end of Central GST allocation looming large.
Seeks finance panel’s help to recover ₹4,500 crore from BBMB
The state government has also sought the intervention of the 16th Finance Commission to recover its due share of r ₹4,500 crore in outstanding arrears from the Bhakra Beas Management Board (BBMB) and to reclaim the 110 MW Shanan Hydel project. In a memorandum submitted to the commission, the state government requested that the Union government be asked to intervene.
Although the BBMB started providing power share on November 1, 2011, past arrears remain pending.
Pension Burden
Strap: The number of pensioners in the state has risen to 189,466, with projections indicating an increase to 238,827 by 2030-31, resulting in a growing pension burden.
Year
Pay Projection (in Crore)
2026-27
₹ 20,693
2027-28
₹ 22,502
2028-29
₹ 24,145
2029-30
₹ 26,261
2030-31
₹ 28,354
